International Economics 8th Edition By Steven Husted – Test Bank

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International Economics, 8e (Husted/Melvin)
Chapter 5 Tests of Trade Models: The Leontief Paradox and Its Aftermath
5.1 Multiple-Choice Questions
1) MacDougall compared export ratios and labor productivity ratios for the United States and the
United Kingdom in order to test the
A) classical theory.
B) the Heckscher-Ohlin theory.
C) the Linder hypothesis.
D) All of the above.
Answer: A
2) Leontief used an input-output table in order to test the
A) classical theory.
B) the Heckscher-Ohlin theory.
C) the Linder hypothesis.
D) All of the above.
Answer: B
3) MacDougall showed in his tests that
A) relatively higher U.S. labor productivity was associated with relatively higher U.K. export
ratios.
B) relatively higher U.K. labor productivity was associated with relatively higher U.K. export
ratios.
C) labor productivity ratios and export ratios were not associated with each other.
D) None of the above.
Answer: B
4) MacDougall’s results can be interpreted as
A) evidence against the classical model.
B) evidence against the Heckscher-Ohlin model.
C) support for the classical model.
D) support for the Heckscher-Ohlin model.
Answer: C
5) An input-output table
A) details the flows of goods and services between various sectors of the economy.
B) shows purchases by certain industries from other industries.
C) shows sales by certain industries to other industries.
D) All of the above.
Answer: D
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6) In his tests, Leontief used an input-output table to
A) calculate the capital and labor required to produce $1 million of U.S. exports and imports.
B) calculate the labor productivity of American workers relative to foreign workers.
C) calculate the capital productivity of American capital relative to foreign capital.
D) All of the above.
Answer: A
7) Leontief found that
A) U.S. exports are capital intensive relative to U.S. imports.
B) U.S. imports are labor intensive relative to U.S. exports.
C) U.S. exports are neither labor nor capital intensive.
D) None of the above.
Answer: B
8) Leontief’s results were considered paradoxical because the United States was believed to be
A) technologically efficient relative to the rest of the world.
B) capital abundant relative to the rest of the world.
C) labor abundant relative to the rest of the world.
D) All of the above.
Answer: B
9) Leontief reconciled his results by arguing that
A) American labor is more efficient than foreign.
B) American capital is more efficient than foreign.
C) Foreign capital is more efficient than American.
D) Foreign labor is more efficient than American.
Answer: A
10) Leontief’s results can be interpreted as
A) evidence against the classical model.
B) evidence against the Heckscher-Ohlin model.
C) support for the classical model.
D) support for the Heckscher-Ohlin model.
Answer: B
11) Which of the following has not been suggested as a reconciliation of Leontief’s findings?
A) international differences in tastes
B) U.S. tariff structure
C) failure to take into account natural resources
D) temporary data problems immediately after World War II
Answer: D
12) Tests, using Leontief’s methodology, to explain trade patterns of other countries
A) show that the Leontief Paradox holds only for the United States.
B) show that paradoxical results obtain for some countries but not for others.
C) show that the Leontief paradox holds in every case.
D) have never been performed.
Answer: B
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13) A problem with Leontief’s methodology is that
A) he had no information on U.S. and foreign factor endowments.
B) he did not use information on foreign factor intensities.
C) he ignored the roles of other factors of production such as natural resources.
D) All of the above are problems.
Answer: D
14) Tests of the Heckscher-Ohlin model by Bowen, Leamer, and Sveikauskas and by Maskus
continue to
A) provide strong support for the theory.
B) provide weak support for the theory.
C) provide evidence against the theory.
Answer: C
15) According to the human skills theory
A) trade patterns depend upon a country’s relative endowment of skilled workers.
B) countries with large endowments of skilled labor will have comparative advantage in skilled
labor intensive products.
C) the Leontief paradox is explained by the fact that the United States is relatively skilled labor
abundant.
D) All of the above.
Answer: D
16) According to the product life cycle model, comparative advantage
A) may move from one country to another as a product matures.
B) always stays in the country where a product is invented.
C) in agricultural or homogeneous manufactured goods is determined by the stage of the life
cycle these products are in.
D) Both A and C.
Answer: A
17) Most theories of comparative advantage explain trade patterns due to international
differences in
A) demand conditions.
B) supply conditions.
C) demand and supply conditions.
D) tariffs.
Answer: B
18) Linder’s hypothesis says that countries with ________ of preferences will trade intensively
with each other.
A) differences
B) utility
C) similarity
D) elasticity
Answer: C
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19) According to Linder, the gains from international trade come about because consumers are
exposed to
A) a greater variety of goods.
B) increasing returns to scale.
C) imperfect competition.
D) None of the above.
Answer: A
20) Linder’s hypothesis provides an explanation for
A) increasing returns to scale.
B) imperfect competition.
C) intraindustry trade.
D) All of the above.
Answer: C
21) The simultaneous export and import of airplanes by the United States is an example of
A) increasing returns to scale.
B) imperfect competition.
C) intraindustry trade.
D) interindustry trade.
Answer: C
22) If output more than doubles when all inputs are doubled, production is said to occur under
conditions of
A) increasing returns to scale.
B) imperfect competition.
C) intraindustry trade.
D) interindustry trade.
Answer: A
23) Intraindustry trade can be explained in part by
A) transportation costs within and between countries.
B) problems of data aggregation and categorization.
C) increasing returns to scale.
D) All of the above.
Answer: D
24) If some industries exhibit increasing returns to scale in each country, we should not expect to
see
A) intraindustry trade between countries.
B) perfect competition in these industries.
C) interindustry trade between countries.
D) Either B or C.
Answer: B
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25) Intraindustry trade is most common in the trade patterns of
A) developing countries of Asia and Africa.
B) developed countries of Western Europe.
C) all countries.
D) None of the above.
Answer: B
26) Which of the following is not one of the theories that have emerged as alternatives to the HO
model?
A) The human skills theory.
B) The product life cycle theory.
C) The similarity of preferences theory.
D) All of the above have been suggested as alternatives to the HO model.
Answer: D
27) The finding that U.S. exports tend to come from labor-intensive industries, while U.S.
imports are produced using relatively capital intensive techniques is known as
A) the Leontief paradox.
B) the balance of trade enigma.
C) the Heckscher-Ohlin paradox.
D) the Krugman finding.
Answer: A
28) One of the leading alternative theories to the HO model of international trade is the Human
Skills theory, which was developed by
A) Donald Keesing.
B) Adam Smith.
C) David Ricardo.
D) G. D. A. MacDougall.
Answer: A
5.2 True or False Questions
1) MacDougall’s test provides evidence that exports are positively related to labor productivity.
Answer: TRUE
2) Leontief showed that U.S. exports were capital intensive relative to U.S. imports.
Answer: FALSE
3) Leontief explained his findings by arguing that U.S. labor is more efficient than their foreign
counterparts.
Answer: TRUE
4) Recent tests suggest that the Leontief Paradox has been completely resolved.
Answer: FALSE
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5) If one allows natural resources to be a factor of production, then it is possible to explain the
Leontief Paradox for the United States on the grounds that U.S. imports are natural resource
intensive.
Answer: TRUE
6) Linder argues that trade is based on international similarities in preferences rather than
international differences in costs of production.
Answer: TRUE
7) A possible reconciliation of the Leontief Paradox is that the United States has high tariffs on
capital intensive goods and low tariffs on labor intensive goods.
Answer: FALSE
8) The product life cycle model says that comparative advantage in manufactured goods may
move from one country to another as a product becomes more standardized.
Answer: TRUE
9) If the Heckscher-Ohlin model is correct, there would never be intraindustry trade.
Answer: FALSE
10) One of the reasons why we have several competing theories of international trade flows is
difficulty economists encounter in devising and carrying out precise tests of trade theories.
Answer: TRUE
11) An input-output table details the sales of each industry to all other industries in an economy.
Answer: TRUE
12) The Leontief paradox can be summarized as the finding that U.S. exports tend to come from
capital-intensive industries, while U.S. imports are produced using relatively labor-intensive
techniques.
Answer: FALSE
13) As of 2004, the U.S. , Canada, and Western Europe account for 60 percent of the world’s
annual consumption of goods and services while having only about 11 percent of the world’s
population.
Answer: TRUE
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5.3 Essay Questions
1) Write an essay on the Leontief Paradox. Include in your discussion what Leontief found that
was so paradoxical as well as a brief description of several of the various reconciliations that
have been offered to explain the Paradox.
Answer: Leontief found U.S. exports were relatively labor intensive, implying within the
context of the Heckscher-Ohlin model that the United States is relatively labor abundant. Several
reconciliations have been offered, including U.S. labor relatively more efficient (Leontief),
importance of natural resources (Vanek), U.S. tariff structure (Travis), and international
differences in tastes and technologies.
2) Compare and contrast the predictions of the Heckscher-Ohlin and classical models about
likely trading partners of various countries with the predictions of the Linder hypothesis.
Answer: Both the classical and the HO models argue that the gains from trade emanate from
different autarky relative prices. Consequently, differences in technology or factor endowments
would seem to imply the possibility to exploit these gains. Linder argues that countries with
similar standards of living (i.e. similar factor endowments or technologies) will produce similar
types of goods and hence benefit by trading extensively, due largely to the availability through
trade of an increased variety of goods.
3) Does the presence in the real world of intraindustry trade prove or disprove the classical or
Heckscher-Ohlin models? Explain.
Answer: It does not disprove these theories, but it does present difficulties. Clearly, both
theories would seem to imply that trade should be interindustry. Some intraindustry trade can be
explained by transport costs or by data classification problems. The intraindustry trade that
remains suggests the need for broader theories that incorporate such factors as increasing returns
to scale and goods that are imperfect substitutes.
4) Describe some of the problems in testing the Heckscher-Ohlin theory.
Answer: Leontief’s test was incomplete because he did not have data on national factor
endowments. He only looked at the relationship between factor intensities and trade flows.
Recent tests by Maskus and Bowen, Leamer, and Sveikauskas incorporate factor endowments
and still find evidence against the theory. However, their findings are based on assumptions
about national technologies that may be incorrect. Moreover, data on factor endowments may not
be very accurate.
5) Is the distribution of income across different countries in the world equitable? In other words,
do all countries share the world’s wealth equally?
Answer: No, there are large differences in they way wealth is distributed across countries. For
example, the U.S., Canada and Western Europe account for 60 percent of the world’s annual
consumption, while having only 11 percent of the world’s population. In contrast, Africa and
South Asia have 37 percent of the world’s population but represent only about 6 percent of world
consumption expenditure.

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